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SEPA Compliance Pressure Heating Up

Survey suggests only 11 percent of companies have fully operational SEPA-compliant systems, with deadline less than six months away.

Last week, PwC released an update to the “SEPA Readiness Thermometer” that it originally developed in January 2013. The first report suggested that 55 percent of companies were at risk of missing the February 1, 2014, deadline for clearing euro-denominated credit transfers and direct debits through Single Euro Payments Area (SEPA)-compliant systems. This time around, PwC surveyed 150 organizations about the state of their readiness for SEPA and found that although some companies are making progress, many are still lagging.

The survey found that 26 percent of respondents do not have in place a project plan for SEPA readiness; that number has not decreased since January. “This number is significant,” states the PwC report, “given the incomplete understanding of what SEPA readiness entails. We observe a widespread inconsistency in scope definition—in particular, for companies that have not planned their readiness activities.”

Among all respondents, only 11 percent have fully operational SEPA-compliant systems at this point, while another 20 percent are currently testing their systems. Nearly two in five are still in the implementation phase with their SEPA compliance projects. And almost a third of respondents indicated that their company is way behind—either currently designing SEPA-compliant systems or just now assessing their needs. (See Figure 1.)

Almost 40 percent of respondents said their company has either completed SEPA readiness testing with their banking partners, or else is in the process of testing with all their banks. However, 33 percent are planning to do all their testing later this year, 2 percent are planning not to run tests, and 4 percent have “run into complications” during testing. (See Figure 2.)

The PwC report expresses concern about respondents’ levels of preparedness: “Experience has taught us that SEPA projects take, on average, 6 to 12 months. However, heavy direct debit users, decentralized organizations, and corporations using in-house developed IT systems may need up to 24 months.”

PwC recommends that companies at risk of SEPA noncompliance on February 1, 2014, should develop a “Plan B.” This may entail reducing the number of cash management banks the organization works with. It may involve using cloud-based conversion software that sits between the company and the bank, translating legacy payment formats into SEPA-compliant formats. Or an organization with concerns about the SEPA deadline may reconsider the payment options it makes available to European customers, using online payment formats as alternatives to credit transfers or direct debits.

“Having such alternatives in place will reduce the stress of setting up mandate-management solutions,” the PwC report states. “It should be noted that this solution is the least preferred from a treasury point of view because of the possible impact on liquidity. Late payments and/or increasing receivables may void the benefits gained by reducing the SEPA scope.”

How do survey respondents expect the February deadline to affect companies that are ill prepared? The same number (23 percent) think regulators will enforce the deadline, regardless of the consequences, as think regulators will continue to accept use of legacy payment products for a grace period. Another 25 percent expect banks to step in, or regulators to ask banks to step in, and provide conversion services for clients that aren't ready for SEPA. (See Figure 3.)

Only time will tell which approach European regulators will take. For the two-thirds of companies that have not yet reached the testing phase of their SEPA compliance initiatives, one can hope they opt for leniency.

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